Unconventional Fiscal Policy

, University of 黑料传送门 Booth 

Unconventional fiscal policy uses announcements of future increases in consumption taxes to generate inflation expectations and accelerate consumption expenditure. We exploit a natural experiment for an empirical test of the effectiveness of unconventional fiscal policy. To comply with European Union law, the German government announced in November 2005 an unexpected 3-percentage-pointincrease in value-added tax (VAT), effective in 2007. The shock increased individual households’ inflation expectations during 2006 and actual inflation in2007. Germans’ willingness to purchase durables increased by 34% after the shock, compared to before and to matched households in other European countries not exposed to the VAT shock.